Do Firms Share Their Success with Workers? The Response of Wages to Product Market Conditions
Marcello Estevao and Stacey Tevlin 2000-17

Abstract:&nbspWe provide strong new evidence that industry financial conditions
play an important role in wage determination in the U.S.
manufacturing sector. Ordinary least squares estimates of the
effect of rents per worker on wages are positive and significant,
but quite small. However, using two standard bargaining models, we
illustrate that this may stem from a variety of econometric
difficulties that plague the OLS estimates. In this paper, we are
able to overcome these issues and identify the effects of the
industry financial situation on wages. We do this using the U.S.
input-output tables to isolate exogenous variation in an industry's
product market conditions. Our instrumental variable estimates
reveal a substantial amount of rent sharing in U.S.
manufacturing---much more than is consistent with a purely
competitive labor market.